Contractors Closely Watching Defense Bill Conference | Congressional Quarterly

By Sarah Chacko

As House and Senate conferees work to wrap up the fiscal 2013 defense authorization bill, contractors are hoping lawmakers will spare them from heavy cuts and tighter regulations.

Lawmakers are paying closer attention to spending on government contracting in general in an effort to squeeze out savings, and no agency has a greater reliance on contractors than the Defense Department.

Sen. Claire McCaskill, who chairs the Senate Armed Services Readiness and Management Support Subcommittee, used a television interview this month to ask viewers “who know the kind of money we have wasted on war profiteering and abusive contracts in the war space” to push members of Congress to keep the sweeping changes to defense contracting.

“It’s going to be a conferenceable item,” McCaskill, D-Mo., said. “All these reforms and war contracting that could really make a difference going forward, that we’re holding contractors accountable to a standard that I think Americans would feel much better about.”

Members and staffers on the Armed Services committees have been mum about the fate in conference of provisions that tell the department how many contractors they should cut, how much of a contractor’s salary should be covered by the government, and how much of the $500 billion that the government spends through contracts should go to small businesses.

But with the distraction of the looming fiscal cliff and both chambers scurrying to clear bills before the end of the session, many of the contractor provisions in the defense authorization bill could fall to the cutting room floor simply to get a bill through this year, experts say.

Workforce Mix

At least one provision that conferees will likely include seeks reductions to the civilian and contractor workforce equal to planned military personnel reductions, which amount to more than $5 billion through 2017.

The administration and members who oppose the cuts prefer to let the Defense Department decide what level of reductions are required, even though Pentagon officials say they have little insight to the number of contractors the department employs.

“We don’t have reliable data on contractors. We just don’t formulate it in the same way” as civilian personnel, Defense Comptroller Robert F. Hale told the Senate Armed Services Subcommittee on Personnel earlier this year.

Hale said the department is working on a contractor inventory, but estimated that spending for contractor support dipped slightly between 2012 and 2013.

While Democrats typically support reducing the government’s reliance on contractors — often referred to as “the shadow workforce” — the administration opposed this provision in the Senate’s version of the defense bill (S 3254), saying in its Statement of Administration Policy that “the size of the civilian workforce should be determined based on workload and funding, not on arbitrary comparisons to the military.”

Many people would support cuts to the department’s civilian and contractor workforce, said Todd Harrison, an analyst for the Center for Strategic and Budgetary Assessments.

His organization asked groups of Hill staffers, Defense employees and policy experts to propose theoretical defense budgets that would achieve the $500 billion in savings that the department needs over the next 10 years. Every group given the budget exercise reduced the civilian workforce, with cuts ranging between 20 to 40 percent, Harrison said.

“Maybe it’s unjustified but you look at the hard choice you have to make bringing down the defense budget, and you’re choosing between civilians and military, and the tendency is to protect the uniformed military,” Harrison said.

Alan Chvotkin, executive vice president of the Professional Services Council, said he is hoping House conferees recall the “hollowed-out” workforce that resulted from across-the-board budget cuts in the 1990s. But it’s hard to know if those concerns will outweigh efforts to reduce the budget, he said.

Chvotkin’s group and other trade associations, including the National Defense Industrial Association and the Aerospace Industries Association, opposed the “arbitrary reductions” in the civilian and contractor workforces, as well as language in another section that would cap DoD spending on service contracts at fiscal 2010 levels and would direct the department to hold contractor labor and overhead rates at 2010 levels also.

Instead, the associations, which formed an Acquisition Reform Working Group, wanted the defense authorization measure to include language from a bill by Maryland Democrat Benjamin L. Cardin that would direct the Defense Department to follow the existing workforce management requirements that allow the department to size its workforce based on military strategy requirements and military end-strength.

“The current statutory and regulatory approach has been revisited repeatedly over the past several years and, though not perfect, ties workforce sourcing decisions to mission needs, not budget caps,” PSC President Stan Soloway said in a November letter to Cardin.

The 5 percent reduction required under the provision in the defense bill — roughly 36,000 civilian jobs — would not require layoffs, Harrison said. But it would force the Defense Department to slow its hiring and let some positions go unfilled, he said. Critical positions, such as acquisition and inspector general personnel, would be exempt.

Compensation Cap

Contractors are also watching how conferees will settle on a Senate provision to lower the compensation cap.

The government currently allows contractors to charge up to $764,029 for the salaries, bonuses and other compensation that pays its top five executives. The 2012 defense authorization law (PL 112-81) expanded that cap to all defense contractor employees, but the Defense Department has not yet created rules to carry out the new law.

Senators are now pushing for an even lower compensation cap for contractors. The Senate’s version of the bill would keep the coverage to all contractors, minus a few exceptions for scientists and engineers, and link the cap to the vice president’s salary, or about $230,000.

“It is long past time that we reined in exorbitant taxpayer-funded salaries for defense contractors,” Sen. Barbara Boxer, D-Calif., who co-authored the compensation cap language, said in November. “This measure will help ensure that contractors are not exploiting loopholes to avoid the new common-sense limits on taxpayer-supported pay.”

The administration supports a reduction. Earlier this year, then-acting administrator of the Office of Federal Procurement Policy Lesley Field asked Congress to take up the proposal again, calling the compensation cap “unjustified and unnecessary.”

Contractor associations say the debate usually leads to lawmakers and outside groups comparing what contractors earn in the private sector to what the government pays its employees.

“We’re trying to steer the conversation away from that,” Chovtkin said.

Chovtkin’s group supports an amendment that Boxer, D-Calif., added on the House floor that would require the Pentagon’s inspector general to report to Congress on how the contractor compensation cap has been implemented in previous years.

“It certainly makes sense to put a reporting requirement and collect some data before you make significant reductions, to $230,000 or any other arbitrary number,” Chvotkin said.

The problem with settling for the report is that investigators will likely face the same barriers that have blocked the public and even the department’s own auditors from getting that information — poor recordkeeping, said Angela Canterbury, director of public policy for the Project on Government Oversight.

“They can’t account for what they’re spending,” Canterbury said.

Although the compensation cap has increased by more than 75 percent in the last eight years, from $432,851 in 2004 to $763,029 in 2012, lowering the cap might have little monetary significance, experts say.

“I can understand the concern about where do you stop,” said Robert Burton, a former Office of Federal Procurement Policy deputy administrator and now a partner at the Venable LLP law firm. “But don’t think this is going to be a major proposal for cutting our budget. I don’t think it will make a dent in the deficit.”

Eyeing Small Business

Of the 48 acquisition policy provisions in the version of the defense policy bill passed by the House (HR 4310), half of them deal with small-business contracting, including raising the federal small business contracting goal, prohibiting the bundling of certain contracts, and allowing contracts to be set aside for “early-stage” small businesses.

The Senate version only has a handful of small business provisions that mainly encourage the Pentagon to give more preference to small and disadvantaged businesses.

The administration opposed two House provisions that were also floated during last year’s defense authorization negotiations.

One section would raise the government’s goal of directing 23 percent of applicable federal contracts to small businesses to 25 percent. Though the Small Business Administration, which divvies up the 23 percent among agencies, has been working to create more opportunities for small contractors, the administration said the increase would “establish a laudable but overly ambitious” goal.

The White House also opposed a provision that would require a process for evaluating contracting bundling, which is when agencies combine contracts that could be awarded separately. Those changes would add complexity to the process, which could encourage litigation and constrain agencies that may need to bundle contracts in certain instances, the administration said in its policy statement.

Industry associations also opposed the bundling language, saying it likely would not reduce small businesses complaints that the government is bundling contracts and may actually take opportunities away from small businesses that are trying to win larger awards.

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